The voters just spoke. They think they want no more gargantuan deficits, massive public spending, and exponential growth in government — or the specter of higher taxes to pay for all of it. No wonder: We are on pace to soon owe 100 percent of our annual gross domestic product in national debt, while compiling the largest annual peacetime deficits in our history.
So cutting the borrowing and spending is inevitable if America is to avoid a Greece-like implosion. But as the blood sport begins, we should remember the strange politics that govern the process.
First, no one ever reduces government in good times, when we would be far better able to limit spending, and the public needs less assistance. Cutting happens only after the economy falters and the money runs out.
That fact always leads to a vicious cycle: When the people believe they need public assistance the most, an indebted government is least able to provide it. Recipients have become accustomed to the steady additions in federal money they receive and will insist that they can survive only with continual increases, never by reducing their own expenditures.
Second, raising taxes has limits, as we see from the California meltdown. There, a 10 percent state income tax on upper incomes and a sales tax of nearly 10 percent did not result in balanced budgets, but instead sent many high earners and businesses out of state, and made the ones that stayed stop hiring and buying equipment. Employers will prefer to shut down or hide rather than take risks while they feed the ever-growing state beast.
Third, Democrats are always politically in a far better position than Republicans to cut federal spending. As the signature party of redistributive change, they are less vulnerable to charges of being needlessly cruel — in the same ironic way that conservatives give aberrant big-spending Republicans a pass, as if their profligacy were somehow out of character.
That paradox may explain why government spending as a percentage of GDP actually shrank under Bill Clinton, who achieved budgetary surpluses in three of his eight years as president — but deficits and government spending rose dramatically under George W. Bush. Yet Clinton was rarely derided by liberals as hard-hearted for his fiscal discipline or praised by conservatives for his parsimony. Nor was Bush often lauded as caring by the Left for his government generosity, or chastised much by the Right for his profligacy.
Fourth, politicians promise the easy cutting of generic “waste and fraud,” “foreign aid,” or “unnecessary wars.” The problem, however, is that waste, wars, and aid probably account for less than 5 percent of the federal budget this year. In contrast, more than 60 percent of yearly spending is devoted to Social Security, Medicare, Medicaid, and defense expenditures not directly related to war. Budgetary discipline is impossible without a no-holds-barred discussion of demography, increased longevity, and the national-security perils of unsustainable national debt.
Fifth, self-interest governs the entire debate. Roughly half the public pays no income tax. And roughly half of Americans receive all of their income or a large part of it from the federal government. Beneficiaries vote for higher taxes on others and still more benefits for themselves. Benefactors obviously prefer fewer payouts for others and lower taxes on themselves.
And political affiliation is not always a clear guide. Despite public rhetoric, many conservatives will privately object to the cutting of any federal benefits they receive, while high-earning liberals might quietly resent having to pay increased taxes to be spent on others.
Sixth, there is always a “you go first” element to budget-cutting. The party that imposes discipline is demagogued, even as its opportunistic opposition usually claims credit for the improved economy that follows from the responsible policies of others.
What can the public do? Americans should laud any politician of either party who has the courage to work for balanced budgets, and they should hold accountable any who do not. Budget-cutting may be depressing, but it is not as depressing as bankruptcy (ask the French and the Greeks). Do not forget that just as households become upbeat when mortgages and credit cards are paid off, so too will Americans collectively recover their optimism and sense of pride when we are admired abroad for our fiscal sobriety rather than ridiculed for our spending addiction.
And look at it this way: In terms of our collective health and national security, a budget surplus is probably worth more than an expanded federal health-care entitlement, another Social Security cost-of-living increase, or a new aircraft carrier.